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The Economist responded to Mankiw last year: http://www.economist.com/blogs/democracyinamerica/2013/06/inequality http://www.economist.com/blogs/democracyiname

The Economist responded to Mankiw last year: http://www.economist.com/blogs/democracyinamerica/2013/06/inequality http://www.economist.com/blogs/democracyinamerica/2013/06/in... Re: the claim that the rich take on greater risk (hence "Greater risk requires greater reward."), here's the graph: http://i.imgur.com/llLrSZe.png http://i.imgur.com/llLrSZe.png from http://scholar.princeton.edu/gkaplan/files/guvenen_kaplan_aerpp_2014.pdf http://scholar.princeton.edu/gkaplan/files/guvenen_kaplan_ae...

aidenn0 13y ago
The "Greater risk requires greater reward" is BS anyway. Someone making $400k/year would have to be unemployed for 9 years straight to be brought down to $40k/year. I don't need a graph to know that even in finance, the risks aren't that bad.
- dredmorbius 13y ago
  It's an aspect of income which is highlighted by Adam Smith. His argument is somewhat more believable than the yarn usually sold by plutocrat apologists: The probability that any particular person shall ever be qualified for the employments to which he is educated, is very different in different occupations. In the greatest part of mechanic trades success is almost certain; but very uncertain in the liberal professions. ...[S]end [your son] to study the law, it as at least twenty to one if he ever makes such proficiency as will enable him to live by the business. In a perfectly fair lottery, those who draw the prizes ought to gain all that is lost by those who draw the blanks. In a profession, where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty. Wealth Of Nations, Book I, Chapter X http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2HCH0010 http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H...
  - aidenn0 13y ago
    It's certainly more believable, but I think the average Ivy-League graduate who doesn't make it in the financial industry is still doing fairly well. I propose that the preparation for the majority of of high-pay fields yields an acceptable payoff even without winning the lottery, with perhaps professional athletes and entertainers being notable exceptions.
    - dredmorbius 13y ago
      I think the average Ivy-League graduate who doesn't make it in the financial industry is still doing fairly well. No argument. Just noting a much earlier (if not the original form) of this argument. Smith is very much worth reading, mostly on the basis that he's not much of what he's been presented as at all.
rquantz 13y ago
The line about the rich taking on greater risk is particularly absurd. The rich risk making less money in a recession relative to their baseline income, sure, but that graph doesn't seem to suggest they face destitution, which a factory worker would face by losing his job, or, until recently, many middle class Americans faced by getting sick for an extended period of time.
- spikels 13y ago
  It depends on your definition of "risk". In economics, as well as business, it is usually defined as the standard deviation of the percentage change and is usually annualized. There are a whole bunch do sensible reasons for this (basically it makes various risks comparable). By this measure the rich face much higher risk than the poor when you look at either income or wealth. In the case of wealth the poor have little if any while the rich have much of their wealth in the very risky stock market (e.g. down 50% in last recession). Incomes are generally less volatile for both the rich and poor but more volatile for the rich. You are right it does not capture the impact on individuals. As far as I know there is no such measure but it would be something along the lines of the standard deviation of utility. Unfortunately any such measure would be subjective and hard to understand across more than a few individuals.
fredgrott 13y ago
its not greater risks.. Its placing bets on those risks that you have better information on or informed about.

aidenn0 13y ago

The "Greater risk requires greater reward" is BS anyway. Someone making $400k/year would have to be unemployed for 9 years straight to be brought down to $40k/year. I don't need a graph to know that even in finance, the risks aren't that bad.

dredmorbius 13y ago
It's an aspect of income which is highlighted by Adam Smith. His argument is somewhat more believable than the yarn usually sold by plutocrat apologists: The probability that any particular person shall ever be qualified for the employments to which he is educated, is very different in different occupations. In the greatest part of mechanic trades success is almost certain; but very uncertain in the liberal professions. ...[S]end [your son] to study the law, it as at least twenty to one if he ever makes such proficiency as will enable him to live by the business. In a perfectly fair lottery, those who draw the prizes ought to gain all that is lost by those who draw the blanks. In a profession, where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty. Wealth Of Nations, Book I, Chapter X http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2HCH0010 http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H...
- aidenn0 13y ago
  It's certainly more believable, but I think the average Ivy-League graduate who doesn't make it in the financial industry is still doing fairly well. I propose that the preparation for the majority of of high-pay fields yields an acceptable payoff even without winning the lottery, with perhaps professional athletes and entertainers being notable exceptions.
  - dredmorbius 13y ago
    I think the average Ivy-League graduate who doesn't make it in the financial industry is still doing fairly well. No argument. Just noting a much earlier (if not the original form) of this argument. Smith is very much worth reading, mostly on the basis that he's not much of what he's been presented as at all.

rquantz 13y ago

The line about the rich taking on greater risk is particularly absurd. The rich risk making less money in a recession relative to their baseline income, sure, but that graph doesn't seem to suggest they face destitution, which a factory worker would face by losing his job, or, until recently, many middle class Americans faced by getting sick for an extended period of time.

spikels 13y ago
It depends on your definition of "risk". In economics, as well as business, it is usually defined as the standard deviation of the percentage change and is usually annualized. There are a whole bunch do sensible reasons for this (basically it makes various risks comparable). By this measure the rich face much higher risk than the poor when you look at either income or wealth. In the case of wealth the poor have little if any while the rich have much of their wealth in the very risky stock market (e.g. down 50% in last recession). Incomes are generally less volatile for both the rich and poor but more volatile for the rich. You are right it does not capture the impact on individuals. As far as I know there is no such measure but it would be something along the lines of the standard deviation of utility. Unfortunately any such measure would be subjective and hard to understand across more than a few individuals.

fredgrott 13y ago

its not greater risks.. Its placing bets on those risks that you have better information on or informed about.